Hair Of The Dog That Bit Us

So - the economy is tanking because the American Consumer's debt burden has finally become overwhelming, and the Federal Reserve's solution to this problem? Make credit cheaper! The Federal government's solution to this problem? Give everybody a tax rebate (except for poor people who don't pay taxes; I'll get to that later), so they'll go out and buy more stuff and prop up the economy!

I guarantee, that if your house is in foreclosure because your $3500 mortgage payment is over 80% of your take-home pay, an $800 tax credit is not necessarily going to cause you to go out and buy something.

Of course, I don't carry credit card debt myself, so my reaction to this may be unusual, but if I had a major debt burden, and I suddenly got $800, my impulse would be to pay something down. I don't think people are doing this yet; I'm reading that they're missing payments on their credit card debt as well as on their mortgages.

This whole economic problem has been caused, IMHO, by running the economy on credit for 40 years (which is about how long we've had credit cards). Everybody says, oh, the world economy is driven by the American Consumer. Guys, the American Consumer is broke. Stony. Maxed out. If you can't pay off the debt you have, making new debt cheaper Will Not Help You. I read one comment that the recent rate cut would make some mortgage resets smaller, so they might only go up $150 instead of $500 a month. Yeah, but if you're already behind on the payments, if you already can't afford the mortgage, making the reset smaller is not a significant improvement.

I remind myself again and again that 90% of the news is made by 10% of the people, but still. I read over and over again about people who've owned their houses for many years, and are now about to lose them because they've refinanced them to take out cash, over and over, and now they can't pay the mortgage, can't refinance because the house value is less than they owe, and can't sell because the market is in the tank. They're going to lose the houses they should have been able to die in, because they over-borrowed. In 1976, the supporters of California's Proposition 13 made a big deal that older people were going to lose their homes because of rising property taxes. Some of the people that are going to lose their homes to foreclosure now are those people; and no constitutional amendment will help them. They did this themselves. This is running the world on credit, and the bills have come due.

Are we having a recession?? Damn straight we are. Is the rate cut going to help? Not a chance. Frankly, I think the rate cut was a major mistake. Low interest rates are what got us into this mess. If we're not really careful, low interest rates will dump us back into the 70's, a decade I have no desire to rerun, especially as a retiree. Inflation is ticking up just as oil and food prices spike and job creation essentially vanishes; does all this sound familiar? I'm sorry, the European Central Bank is correct here: they just refused to cut rates on the grounds that their primary focus is to keep inflation under control. Ben Bernanke should try to remember that.

Oh, yes, and the tax rebate issue. It's amazing how consistent Dubya is. He wants to restrict tax rebates to people who actually paid taxes, which basically eliminates anybody with children making less than about $75K. (Don't hold me to these numbers. But it's a LOT of people.) In other words, as usual, Dubya wants to give tax help only to people who don't actually need it.